The AI Chips Industry: Projections and Implications for the Future

Thursday - February 8 2024, 11:46 UTC - 9 months ago

The AI chips industry is expected to reach $85.2 billion by 2027 with a CAGR of 40.1%.

NVIDIA and other silicon suppliers would see a massive surge in demand for their products, while hyperscalers would grow at a faster rate and increase their capital expenditures.

The pace of infrastructure deployment will not be smooth due to the rapid growth, but the bubble is unlikely to burst before 2026.

Elon Musk's projections could lead to even faster growth in the industry.

The AI chips industry has experienced significant growth in recent years, driven by the increasing demand for artificial intelligence-powered technologies. According to New Street Research, the market size for AI chips is currently valued at $8.1 billion and is projected to reach $85.2 billion by 2027, with a compound annual growth rate of 40.1% from 2020 to 2027.

One of the key drivers of this growth is the rising adoption of cloud-based services, which require high computing power to process large amounts of data. As the demand for AI-powered technologies continues to grow, there has been a significant increase in investments for developing more advanced and efficient AI chips.

The projections provided by New Street Research are even more remarkable when compared to the growth rate reported by Elon Musk, who stated that AI compute is growing at a rate of 10X every 6 months. This would surpass even the most optimistic projections and lead to a far larger industry than what is currently expected by industry experts.

The implications of such a significant growth in the AI chips industry are immense. In their research, New Street points out three main implications for all players involved: .

1) NVIDIA and other silicon suppliers would see a massive surge in demand for their products. Even if the projections by New Street only partially materialize, these companies would still outperform expectations.

2) Hyperscalers, companies that run massive data centers, would also benefit greatly from the increase in demand for AI chips. This would lead to a much faster revenue growth and a significant increase in capital expenditures for these companies. While this may seem like a risk, New Street believes that it would actually be a positive outcome, as the investment would fuel the growth of these companies' well-protected and profitable business franchises.

3) The pace of infrastructure deployment for AI chips will not be a smooth and steady process. As long as the demand and adoption of AI technologies continue to outpace capacity deployments, capital expenditures will grow at a rapid pace. However, once the two lines intersect, there will be a significant drop in capital expenditures, potentially leading to a market correction.

4) The big question is: When will the bubble burst? According to New Street, the year 2024 seems to be a turning point, with high levels of investment and excess capacity in the market. However, it is unlikely that the bubble will burst before 2026. This means that the demand for AI chips will continue to grow for the foreseeable future, with the market reaching its full potential long after 2027.

It is clear that the AI chips industry is growing at a rapid pace and has the potential to exceed even the most ambitious projections. With significant investments and technological advancements, this industry has a bright future ahead.

In conclusion, the work done by New Street Research presents a comprehensive and thought-provoking look into the future of the AI chips industry. If Elon Musk's projections turn out to be more accurate, the industry will experience even faster growth, leading to significant implications for all players involved.